Charitable Remainder Trusts

A Charitable Remainder Trust is established
for the life of the donor (also trustor or grantor)
and/or for the life of any beneficiary(-ies) and is
irrevocable. Once established, it cannot be changed.
If it is desired, the income period of the trust can
be established for a specified period of time not to
exceed twenty years. The
twenty-year maximum does not apply if the trust life
is based on the life expectancy of the income beneficiary(-ies).

Because the income is paid to one or more
parties and, at the end of the trust's life, the principal
and any undistributed interest is paid to a different
party, a charitable remainder trust is called a split
interest trust. The income portion of the trust may
be either an annuity income or a unitrust income.

An annuity income is calculated at the
time the trust is established in the trust agreement.
It is a fixed amount of dollars based on the then market
value of the trust. If the assets of the trust go up
in value, the income portion does not change.

With a unitrust, the assets of the trust
are revalued annually and the percentage rate established
in the trust agreement determines the dollar amount
of the unitrust interest. If the value of the principal
in the unitrust declined, the value of the interest
portion of the unitrust would decline as well. The unitrust
interest value would increase if the value of the trust
assets increased.

A charitable remainder trust is an attractive planning
tool for the disposal of highly appreciated assets.
While the assets revert to the charity rather than the
heirs of the estate, the use of an irrevocable life
insurance trust in conjunction with a charitable remainder
trust could replace the asset's value for the heirs.

Net Income Charitable Remainder
TrustThis
variation of a unitrust provides that either the specified
fixed percentage of the trust assets or the net income
of the trust is distributed to the beneficiary, whichever
is less. This type of trust is often used to handle
real estate as there is no fixed distribution requirement,
giving the trustee time to arrange an orderly sale of
the property. A net income charitable remainder unitrust
can be an excellent way to donate appreciated property
and turn it into an income stream as well as acquire
tax benefits.

A donor may also add a 'makeup provision" to the
trust. This allows a trust to distribute more than the
fixed percentage of the assets in years where the trust's
income exceeded the fixed percentage. In this manner,
previous year's shortages, when the trust was not able
to earn the fixed percentage payment, may be made up.

Flip Charitable Remainder UnitrustA flip unitrust blends two types of trusts for greater
flexibility, both for the donor and the eventual remainderman.
The trust functions as a net income trust until a specified
event occurs. On January 1st following the specified
event, the net income trust flips and becomes a standard
unitrust. This type of trust functions well for illiquid
assets such as real estate or assets that are hard to
value. Click here for more information on flip
unitrusts.

Please note, individual financial circumstances will vary. The information on this site does not constitute legal or tax advice. Donor stories and photographs are for purposes of illustration only. As with all tax and estate planning, please consult your attorney or estate specialist. All material is copyrighted and is for viewing purposes only. Use of this site signifies your agreement with the terms of use. The content in this Planned Giving section has been developed for KUCO and is owned by Future Focus. Please report any problems to webmaster.